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# Effect on market equilibrium

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For each of the following changes, show the effect on the demand curve, and state what will happen to the market equilibrium price and quantity in the short run:

a. The price of substitute good rises.
b. Consumer incomes fall, and the good is normal.
c. Consumer incomes fall, and the good is inferior.

If a product's demand function is: Q=30-3p, then calculate the price elasticity of demand when:
a. product price is \$3 using the point elasticity formula.
b. Product price decreases from \$4 to \$3, using the are elasticity formula.

https://brainmass.com/economics/elasticity/effect-on-market-equilibrium-163942

#### Solution Preview

For each of the following changes, show the effect on the demand curve, and state what will happen to the market equilibrium price and quantity in the short run:

a. The price of substitute good rises - this caused the demand for the other good to increase, as people shift away from the more expensive option. An outward shift in the demand curve will cause the price to fall and quantity to increase.
b. Consumer incomes fall, and the good is normal - people will buy less of a normal good when their incomes fall. A backward shift in the demand curve will result in a higher price and lower quantity demanded.
c. Consumer incomes fall, and ...

\$2.19

## Demand and supply curves for several markets: determining upward or downward movement and changes in equilibrium price and quantity.

Consider the demand and supply curves for several markets - the market for mineral resources, the market for wheat, the market for sugar, and the market for motor homes. Indicate whether the effect of each of the following is an upward or downward movement along a given demand (or supply) curve, i.e. no effect on demand or supply, or instead involves an outward or inward shift in the relevant demand (or supply) curve for the product in question. How will the market equilibrium price and quantity change from the original equilibrium? (Note: Think only about the short-run effects of these changes and do not concern yourself with the multiple shifts due to long-run effects.) Explain your answers.

a) The mineral market: The costs of producing mineral resources rise as the resources are depleted and it becomes harder to extract the mineral deposits from the earth.

b) The wheat market: Due to floods in the Midwest, half of the wheat crop in the United States is destroyed. At the same time, the price of oats (a substitute for wheat) decreases due to a sharp rise in the number of farmers growing oats in response to consumer demand for health food.

c) The sugar market: There is a drought in the sugar cane fields of Hawaii.

d) The motor home market: There is a decrease in the average price of new motor homes.

Please use a chart similar to the following:

Market Demand Curve Supply Curve Equilibrium
Price Equilibrium Quantity
Minerals
Wheat
Sugar
Motor Homes

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